Question

L is a partner with an outside basis = $30,000. The basis is made up of a $10,000 contribution of cash and a $20,000 share of the partnership’s nonrecourse financing. L’s share of partnership losses for the current year is $18,000. L may deduct in the current year:

a.	A loss = $18,000	c.	A loss = $30,000
b.	A loss = $10,000	d.	A loss = $20,000

Answer 1

	The ability to deduct losses is limited to partner's "at risk amount" in the partnership. At risk amount does not include non-recourse laibilities. Hence, L at risk amount will be only $ 10,000 ( 30,000 - 20,000 ), so he can deduct his share of loss of partnership limited to his at risk amount of $ 10,000 out of total share of loss of $ 18,000.
	Correct answer is option b (i.e. A loss = $ 10,000 ) .